From Deutsche Bank
We think the BoJ will likely decide to maintain current policy tomorrow. Japan's economy is improving gradually, and share prices and the USD/JPY have also recovered much of the ground lost during Trump trading. We think the BoJ will be able to generate bull pressure on the USD/JPY if it continues to cap growth in long-term JGB yields under YCC policy as the outlook for rate hikes in the US strengthens.
BoJ policy can be viewed as a secondary engine for USD/JPY appreciation. If the primary engine of the US economy loses momentum, we think the USD/JPY would be prone to downside irrespective of what the BoJ does as a secondary engine.
However, as far as we can judge from what the Trump administration is doing, we do not think pessimism regarding the feasibility of it delivering on policy promises will gain traction soon. As aggressive US fiscal policy prompts the Fed to hike interest rates, we think BoJ policy will prove more effective for yen depreciation as it rides the tailwind of a stronger dollar.
Although the market has become less interested in BoJ policy, the BoJ is acting inconspicuously to support the USD/JPY. At the same time, we think interest in the US administration's currency policy will likely increase. The Trump administration has indicated it wants to include currency clauses in bilateral trade agreements. If this does not proceed smoothly, we note that US intervention might not only check the USD/JPY rate but also pose a potential risk for BoJ policy as a yen-depreciation factor. However, while it is difficult to imagine that the BoJ would soon reverse monetary easing owing to US pressure, we think fiscal and monetary policy in the US itself would likely rapidly strengthen the dollar-bull impact. We think pressure on the BoJ would ease temporarily if the USD/JPY fell owing to checks by the US. We at least see no scenario for the USD/JPY to turn bearish.
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